Carillion collapse: Cabinet Office sets out plans to maintain public services run by contractor

Written by Richard Johnstone on 15 January 2018 in News

News

David Lidington said it would not have been responsible for the government to bail out the firm that works on rail projects as well as managing prisons and providing school meals

The now-collapsed company Carillion has been struggling under £900m of debt. for several months. Credit: PA

The Cabinet Office has said it will take action to ensure that the public services operated by collapsed construction and services firm Carillion are maintained after the company entered insolvency today.

The future of the firm, which had a construction contract as part of the High Speed 2 rail link as well as providing school meals and maintaining public sites including military bases and prisons, has been in doubt for months as it is £900m in debt.

The government was involved in rescue talks for the firm last week, with civil service chief executive and Cabinet Office permanent secretary John Manzoni leading the government’s participation in talks over its future.

According to government figures, Carillion held approximately 450 contracts with government, representing more than one-third (38%) of Carillion’s 2016 reported revenue, including contracts with the Department for Transport, the Department for Education, the Department of Health and Social Care, the Ministry of Justice, and the Ministry of Defence.

In a statement released today, Cabinet Office minister David Lidington said the government would will continue to deliver all public sector services following the insolvency.

An official receiver has been appointed to liquidate the company, and Lidington said that the government will provide the necessary funding to maintain public services, with accounting and consultancy firm PwC appointed as special managers.

“It is regrettable that Carillion has not been able to find suitable financing options with its lenders but taxpayers cannot be expected to bail out a private sector company,” said Lidington.

“Since profit warnings were first issued in July, the government has been closely monitoring the situation and has been in constructive discussion with Carillion while it sought to refinance its business. We remained hopeful that a solution could be found while putting robust contingency plans in place to prepare for every eventuality. It is of course disappointing that Carillion has become insolvent, but our primary responsibility has always been to keep our essential public services running safely.”

He said that that all employees should continue to come into work and said they would continue to get paid. “Staff that are engaged on public sector contracts still have important work to do,” he added.

Lidington also defended the use of private firms in the delivery of public services. “Since its inception in the 1990s private finance has helped to deliver around £60bn of much-needed capital investment in infrastructure in the UK across a range of projects and we will continue to maintain partnerships with responsible firms in future,” he stated.

However, the government has been criticised for its response to the company’s troubles, including that it awarded construction contracts for the High Speed 2 rail link to a consortium that included Carillion in July despite its profit warnings.

Shadow Cabinet Office minister Jon Trickett said that the government should act to bring these public sector contracts back in-house to protect public services and ensure employees of Carillion as well as supply chain companies, taxpayers and members of the firm’s pension fund are protected.

“Given £2bn worth of government contracts were awarded in the time three profit warnings were given by Carillion, a serious investigation needs to be launched into the government’s handling of this matter,” he added

“It is vital that shareholders and creditors are not allowed to walk away with the rewards from profitable contracts while the taxpayer bails out loss-making parts of the business.”

Public Accounts Committee chair Meg Hillier said that the firm’s collapse raised “grave concerns about jobs, the delivery of public services and the way government conducts its business”.

She added: “The Public Accounts Committee has previously warned of the risks when contractors, paid from the public purse, become too big to fail.

“Government now faces a stark choice: bail Carillion out or let public services and projects suffer. Either way, taxpayers will get a raw deal. Government has serious questions to answer about its role in allowing taxpayers’ exposure to escalate to this point.”